Fewer construction projects and more competition in the market means contractors are becoming very aggressive in bidding. This has led to an increased emphasis on all aspects of preconstruction and project management, starting with estimating or cost-outs.
While most small and medium-sized contractors previously relied on basic spreadsheet programs to do their costing, they are now shifting to database-driven software programs previously used only by large contractors.
"Even though we are a medium-sized contractor, we have been using Primavera's Expedition software since last year," said Terry Arnett, the president of TSA Contracting. "It makes everything more uniform and allows us to have one base program for all our needs. You don't have as many mistakes."
TSA, a commercial contractor with 36 employees and $70 million in revenues, focuses on ground-up construction and tenant improvement projects.
The company chose the software because several clients used the same program, it was easy to adapt and several good training consultants were available in San Diego.
Another trend with larger construction firms, which have developed and perfected their own estimating methods over the years, include tweaking, or customizing existing software to suit their own needs and adapting it to particular in-house methods is.
Reno Contracting, a general contractor with 60 employees and earnings of $200 million for 2008, purchased a base program for estimating from Sage Timberline and then developed its own custom database system, which it worked on during the last 18 months. It is now in the final testing phase.
"The purpose of the customized database is that it allows us to do estimating the way we've been doing it for 15 years. It starts out at a conceptual schematic level, moves on to design intent, where the drawings are still being worked on by the architects, and then arrives at the detail level, with a full set of drawings where every item can be priced," explained Ed Wenz, the chief technical officer and senior estimator at Reno Contracting who oversees software development.
The custom reporting that Reno developed allows it to take the estimates and rearrange the data in any format the developer or owner wants. This enables the owner to look at the project from several different angles to understand the project better.
The program being tested will enable more accurate estimating, customized reports and search capability based on specific criteria and manipulation of historic costs to compare what a previous project would cost today or two years from now.
"The newly designed system could be used for estimating services as a profit center in the future but for now, Reno intends to use it strictly for our own construction and clients," Wenz said.
Wenz and his team researched and analyzed several different software programs before making their choice. Even smaller companies recognize the value and benefits of a database-driven system, where a contractor gets more choices and consistency.
Standardization and enhanced data analysis are two major benefits of using such systems.
"Junior estimators can now do what only the most experienced senior estimators could do before, with the same results and accuracy," said Wenz, adding that such programs have become much easier to use.
However, he explained that Reno looked at pricing differently, compared to other contractors. The company prefers not to use published pricing databases, since they do not reflect Reno's own unique methods of estimating.
"The published pricing databases are based on national averages with local index adjustments according to regions. We use our own pricing information, since it better reflects what Reno can get the job done for. We compile a lot of historic information to arrive at our cost estimates for bids. Street pricing changes depending on many factors," Wenz said.
Current factors influencing pricing are the slowdown in construction due to the recession and increased competition from contractors, many of whom are changing their business model and going after public works and government projects, in addition to private sector projects.
"We are seeing prices drop like they haven't in years. There has been a 10 to 15 percent drop in the last three to four months," Wenz said, adding that the odds of winning a bid have decreased.
One way around this is to get on board early with the architects and developers, a strategy utilized by both TSA and Reno. This enables the contractor to observe design as it is developed and alert the architects if the budget may be overshot, so that the design can be modified.
With such tie-ups, costing can influence design and the type of materials used, advocating the switch to comparable quality but lower cost materials.
In current market conditions, many general contractors have been shifting their strategy. Reno, which concentrated on Class A office buildings for niche industries like biotech and medical firms, is diversifying into more public work projects, such as schools, universities and institutional facilities.
"Everybody has been forced to look closely at their business model in the last two years. We are all being forced to step outside our comfort zone, especially if we want to keep staff at the same levels," Wenz said.
Arnett echoed the sentiment.
"Private sector is drying up, but defense and school construction is picking up. TSA is sticking to the private sector, but we are diversifying our sub-contractor base, looking for firms not just in San Diego, but also in Orange County and Riverside," he said.
A heavy focus on technology, which plays a major role in increasing efficiency, will continue to be a trend going forward.
Wenz said that during the Southern California construction boom of the last decade, contractors were so busy they did not adapt or retool their systems. He said contractors in other parts of the country were way ahead of local firms when it came to technology.
One such technology currently being used by cutting-edge firms is Building Information Modeling. BIM is an object-oriented building development tool -- as opposed to the traditional image-oriented tool -- that utilizes 5-D modeling concepts to design and construct a building and explain its details to stakeholders.
In the current 5-D BIM model, the third dimension is space, the fourth dimension is time and the fifth dimension is cost. Future iterations will include a sixth (procurement applications) and seventh (operational applications) dimensions.
"As more developers demand BIM for design and project management, contractors will have to adapt to BIM in order to comply," Wenz said.
A major benefit of BIM is that it allows estimators to work with a 3-D perspective and gain a better understanding of the project. Also, a well-designed BIM model can provide the actual component quantities needed for estimating.
Nagappan is a San Diego-based freelance business writer.